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Distortions to Agricultural Incentives

The vast majority of the world’s poorest households depend on farming for their livelihood. In the past their earnings were often depressed by their own country’s policies which had pro-urban and anti-agricultural and anti-trade biases. While progress has been made over the past two decades by numerous developing countries in reducing those policy biases, many welfare- and trade-reducing price distortions remain intersectorally as well as within the agricultural sector of low-income countries.

Where is there still a policy bias against agricultural production? To what extent has there been ‘overshooting’ in the sense that some developing country food producers are now being protected from import competition, following the examples of earlier-industrializing economies? What are the political economy forces behind the more-successful reformers? How important have international forces been relative to domestic political forces in bringing about reform during the past two decades? How important are the potential direct contributions from agricultural policy reform relative to the indirect contributions from non-agricultural policy reforms? For any particular developing country, what is the relative contribution of own-country policies versus those of other developing countries and of high-income countries in affecting net farm incomes? What policy lessons can be drawn from those differing experiences to ensure better growth-enhancing and poverty reducing outcomes from own-country reforms in the future, including less protectionist ‘over-shooting’?

This major research project is addressing these questions in two stages during 2006-09. The first stage involves a series of national country studies in Africa, Asia, Latin America and Europe's economies in transition, which has culminated in a set of four regional volumes published in 2008-09. Click here to freely access the Working Paper versions of those books’ chapters (with their long appendixes) and the associated national spreadsheets, and click here to download the ebooks. Those books have been summarized and supplemented with overviews of policy trends since the 1950s in more-advanced economies, together with trade restrictiveness and global, economy wide CGE modeling analyses so as to get a better picture of the world’s distortions to agricultural incentives. That synthesis is published in a global overview volume, released in October 2009 and accessible by clicking here.

While those books on the extent of distortions were being completed, the second stage of the project began. It uses econometrics to estimate the political economy reasons behind the pattern of distortions across countries, commodities and over time, and the inequality, poverty and other economic effects of current versus alternative policy regimes for individual countries. Two books from Stage 2 were completed during 2009. Click here to access the Working Paper versions of those books’ chapters and of related papers prepared as part of this project. Click here to download a copy of the Inequality and Poverty e-book. To order hard copies of the following World Bank books, click here.